Maximum mortgage interest credit/deduction?

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Keithcdcl
Keithcdcl Member Posts: 1 Newcomer
in Credits/Deductions

I bought my first home at the beginning of 2023 and will have a tremendous amount of mortgage interest payment made by the end of the year, is there a maximum amount of mortgage interest I can deduct from my taxes?


Simplified scenario for example, if my federal taxes are 20k and my mortgage interest is 25k would I get a refund of all 20k federal taxes paid in 2023?

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  • zabostaxes
    zabostaxes Member Posts: 7 Level 2
    edited October 2023 Answer ✓
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    Hi Keithcdcl,

    You can deduct up to $750,000 (if married filing jointly) and up to $375,000 if not.

    However, tax DEDUCTION is not the same thing as a tax CREDIT. If you had 25k in tax CREDITS and owed 20k you would not need to pay any taxes.

    $25,000 DEDUCTION is subtracted from your household income to calculate the new tax you owe.

    Simplified example, you had to pay 20% on 100k of your earnings; 20% of 100k = 20k. With 25k of deductions you owe 20% on 75k (100k-25k); which is $15k.


    https://www.irs.gov/pub/irs-pdf/p936.pdf

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  • JMSSGV
    JMSSGV Member Posts: 74 Level 5
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    "You can deduct up to $750,000 (if married filing jointly) and up to $375,000 if not."

    You cannot DEDUCT up to $750,000. You can deduct the INTEREST on up to $750,000 of indebtedness. Big difference.

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  • CoryF
    CoryF FreeTaxUSA Agent Posts: 65
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    Thank you for this clarification, JMSSGV.

    That is totally correct. The IRS limits the deductibility of home mortgages totaling $750,000 or more. The amount of Mortgage Interest, if paid on a mortgage amount less then 750k, is fully deductible even if its total is equal to or more than 25,000 paid in 2023. This is an Itemized Deduction, and it reduces Adjusted Gross Income to arrive at Taxable Income. This was summarized by zabostaxes. Itemized deductions will reduce your taxable income and taxes, but it is not a dollar-for-dollar reduction like how a specific credit operates.

    To answer the first question, claiming the mortgage interest reduces your tax but not directly. You are able to see the results of changing your itemized deductions, increasing or decreasing the different inputs (mortgage interest, property taxes) to see the effect on your Federal owed amount when you start and work on your 2023 tax return.

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